1992 (6) TMI 52 - AT - Income Tax

Tribunal directs ITO to assess rental income under 'Income from house property' granting full deductions.

Marshall Sons And Company (India) Limited. Versus Income-Tax Officer.

The Tribunal directed the ITO to assess the rental income under 'Income from house property' instead of 'Other sources,' allowing the assessee all ... House Property, Immovable Property, Movable Property, Purchase Price Issues Involved:1. Assessability of rental income under the head 'Income from house property' or 'Other sources.'2. Legal ownership of the property for the purpose of taxation under Section 22 of the IT Act.3. Applicability of the Supreme Court decision in Nalinikant Ambalal Mody's case.4. Relevance of the Calcutta High Court's decision in Madgul Udyog's case.Detailed Analysis:1. Assessability of Rental Income:The primary issue is whether the rental income from the property at Ghusuri, Howrah, Calcutta, belonging to the assessee-company, should be assessed under the head 'Income from house property' or 'Other sources.' The assessee derived rental income of Rs. 1,71,806 during the relevant accounting year and offered it under 'Income from house property.' However, the ITO held that since the assessee was not the legal owner of the property, the income should be assessed under 'Other sources.' The CIT(A) upheld this view.2. Legal Ownership for Taxation:The assessee contended that since there was no executed and registered sale deed, it could not be considered the legal owner under Section 22 of the IT Act. The assessee argued that if the income cannot be taxed under 'Income from house property,' it should not be taxed at all. The CIT(A) did not accept this submission. In the further appeal, the assessee's counsel, Mr. N. K. Poddar, reiterated that only the legal owner could be assessed under Section 22, relying on several judicial precedents, including CIT v. Ganga Properties Ltd., CIT v. Smt. T. P. Sidhwa, and CIT v. Prabhabati Bansali.3. Applicability of the Supreme Court Decision:Mr. Poddar further argued that if the income cannot be assessed under 'Property,' it should not be taxed at all, citing the Supreme Court decision in Nalinikant Ambalal Mody's case. This principle was also followed by the Bombay High Court in CIT v. Smt. T. P. Sidhwa.4. Relevance of Madgul Udyog's Case:The departmental representative, Mr. Sen, countered by citing the Calcutta High Court's decision in Madgul Udyog v. CIT, which held that the term 'owner' should be interpreted broadly. The High Court ruled that if a person has paid the sale consideration and is in possession, the lack of a formal sale deed does not prevent them from being treated as the owner for Section 22 purposes. Mr. Sen argued that the assessee, having derived rental income, should be assessed either under 'Property' or 'Other sources.' He also referred to a Tribunal decision in ITO v. Mrs. Bilas Razdan, where similar facts led to the income being assessed under 'Other sources.'Tribunal's Conclusion:The Tribunal concluded that the rental income from the property at Ghusuri, Howrah, is assessable in the hands of the assessee. The Tribunal found the facts undisputed: the assessee paid the full purchase consideration, was in possession, and derived rental income. The Tribunal held that the issue is governed by the Calcutta High Court's decision in Madgul Udyog's case, which interpreted 'owner' in Section 22 to include persons who have paid the purchase price and are in possession, even without a registered deed.The Tribunal rejected Mr. Poddar's argument that the Madgul Udyog case should be confined to flat-builders or sellers, noting that the High Court's interpretation of 'owner' was broad and general. The Tribunal also noted that the decision in Ganga Properties Ltd. was considered by the High Court in Madgul Udyog's case and should be read in light of the Supreme Court decision in R. B. Jodha Mal Kuthiala v. CIT.The Tribunal further noted that the High Court in Madgul Udyog agreed with several other High Court decisions, all concluding that for Section 22 purposes, the person who has paid the consideration and is in possession should be treated as the owner.Final Decision:The Tribunal directed the ITO to assess the rental income under 'Income from house property' instead of 'Other sources,' allowing the assessee all deductions available under this head. The Tribunal found it unnecessary to address the contention that the income should not be taxed at all, as it held that the income is assessable under Section 22.Minor Issues:Paragraphs 14 to 23, involving minor issues, were not reproduced.